Portugal 10 yr bond at 15%/Private PSI deal in Greece a non starter/USA raises debt ceiling to 16.4 trillion

Good evening Ladies and Gentlemen;

Gold closed up today for the second straight day to the tune of $26.50 to finish the comex session at $1726.30. Silver followed her older and wiser cousin by 61 cents to $33.70.  Today is options expiry so this day had saw some early resistance from the bankers but not much.  Gold and silver are being viewed as a safe haven with all the noise of sovereign defaults.  Today Portugal saw its 10 yr bond rise above 15% signalling that it too will join Greece in bankruptcy momentarily. Japan for the first time saw a trade deficit as the nuclear damage is certainly having an effect on their economy.

Let us now head over to the comex and assess trading, inventory movements and amounts of metal standing.
The total gold comex OI fell by 7965 contracts despite gold's big advance.  Many bankers jumped ship with the news yesterday that the USA Fed policy is for ZIRP to continue to 2014.  As far as I am concerned, it will continue to infinity.  The front options expiry month of January saw its OI rise by 51 contracts despite only 1 delivery notice yesterday.  We thus gained 50 contracts or 5000 oz of additional gold standing. The front delivery month of February saw its OI contract from 121,002 to 110,512 as all of these players rolled into April.  The estimated volume today was a monstrous 316,070 contracts.  The confirmed volume yesterday was also huge at 323,392.  It seems that many are trying to locate as much physical as possible.

The total silver comex OI certainly did not follow in the footsteps of its older and wiser cousin, gold.  Here the OI fell by 509 contracts from 103,025 to 102,516 despite the huge advance in silver yesterday and today.  It looks like we had a few post-mortems for our bankers today. The front options expiry month of January saw its OI rise by 43 contracts despite 34 delivery notices.  Thus 77 contracts or  385,000 additional oz of silver are standing in January.  The next big delivery month is March and here we saw the OI remain relatively constant at 51,142 dropping by a little less than 500 contracts.  The estimated volume today was very weak at 37,154.  The confirmed volume yesterday was a lot better coming in at 55,886.
I have been telling you that the silver comex has been trading differently to gold for at least the last 3 months.
It seems that the high frequency traders are almost the entire volume at the comex and these guys are nothing but day traders.  Thus silver can move in monstrous directions as the remaining longs are by definition are strong in nature and cannot be suckered into selling. The other issue is that Butler believes now that JPMorgan is now liquidating its short position and will soon be going long.  This will be the end game as nobody will supply the paper short.

(courtesy ted Butler from his paid subscription.  Special thanks to Ted and Ed Steer)

"If JPMorgan is not selling but is, in fact, buying, then a very different scenario could develop, similar to how I have speculated in the past. If JPMorgan is buying and not the technical funds, then a very different and bullish scenario emerges. If JPMorgan decides not to put its head back into the lion’s mouth and withdraws from manipulating silver, then a new silver chapter may have begun. Let me be clear – there is no way of determining for sure who is buying and selling today and this past Friday; only future COTs will reveal that. If it turns out that JPMorgan is buying back more of its short position on these rallies that would suggest much higher prices to come and maybe real soon. This goes to the heart of the silver manipulation. Take away the big silver short and you should take away the manipulation itself. I’m not saying that is the case, just that it might be. I would play it, as I always do, like it may be the end of the manipulat ion, simply because if it is, there will be little likelihood of second chances to get on board easily."

"That’s not to say that the commercials will roll over and play dead. I sense a profound lack of true liquidity since the MF Global disaster, in which the HFT operators are now responsible for an even higher share of total volume than before. I think that the HFT share of silver volume has approached 100% at times recently, rendering the silver market to its most illiquid state in my experience. More than anything else, this low true liquidity environment is behind the price spikes of Friday and today. In such a low liquidity environment we must be prepared for more price volatility, not less. We must be prepared for whatever may come, but we must also hang on to silver positions like never before. Be prepared for volatility that will rattle your bones. But volatility is a two-way street and up is one of the ways. So is up big."

end


Inventory Movements and Delivery Notices for Gold: Jan 26 2012:

Gold	Ounces
Withdrawals from Dealers Inventory in oz	1119 (Brinks)
Withdrawals from Customer Inventory in oz	33,809 oz(Manfra, HSBC,Scotia)
Deposits to the Dealer Inventory in oz	nil
Deposits to the Customer Inventory, in oz	1200 (JPM,)
No of oz served (contracts) today	61 (6100)
No of oz to be served (notices)	1 (100)
Total monthly oz gold served (contracts) so far this month	1165  (116,500)
Total accumulative withdrawal of gold from the Dealers inventory this month	5719
Total accumulative withdrawal of gold from the Customer inventory this month	325,307 oz

My goodness did we have violent activity in the gold vaults today.
The dealer did not receive any deposit today.
However the customer at JPMorgan received this:  1200 oz of gold.
As you know I strongly believe that anything that is exact is nothing but a paper gold.
The dealer however did withdraw 1119 oz of gold from a Brinks vault.

The customer received the following deposit and I have grave concerns on the 3rd entry:

1.  Out of HSBC  1384 oz
2.  Out of Manfra;  385 oz

3. Out of Scotia:  32,040 oz.

total withdrawal:  33,809 oz.
adjustments;  zero.

The total registered or dealer gold lowers to 2.377 million oz or 73.93 tonnes of gold.

The CME reported to us that we had a huge 61 delivery notices served this morning for a total of 6100 oz
of gold. Since prior to the notice filing we had only 10 notices left to be served upon, someone or some entity needed gold in a hurry to put out fires in other jurisdictions.  The total number of gold notices filed so far this month toal 1165 for 116,500 oz of gold.  To obtain what is left to be served upon, we take the OI standing for Jan (62) and subtract out today's deliveries (61) which leaves us with 1 delivery notice to be filed upon or 100 oz.

Thus the total number of gold ounces standing in this non delivery month is as follows:

116,500 oz (served)  +   100 oz (to be served)  =   116,600 oz or 3.626 tonnes of gold.

If we were to add the delivery month of December to the two non delivery months we have a total number of delivery notices equal to 74.306 tonnes against an dealer inventory of 73.93 or 100.51% of available registered dealer gold.

the silver chart: January 26 2012:

Month of January now commences:

Silver	Ounces
Withdrawals from Dealers Inventory	946,338(Brinks)
Withdrawals fromCustomer Inventory	13,719(Delaware, HSBC)
Deposits to theDealer Inventory	nil
Deposits to the Customer Inventory	1,348,827 (Scotia,brinks,JPM)
No of oz served (contracts)	43 (215,000)
No of oz to be served (notices)	41 (205,000)
Total monthly oz silver served (contracts)	1161  (5,805,000)
Total accumulative withdrawal of silver from the Dealersinventory this month	1,245,022
Total accumulative withdrawal of silver from the Customer inventory this month	5,343,627

Another wild day at the silver pits.

First off, we had a huge dealer withdrawal of silver to the tune of 946,338 oz
and this silver went to the customer JPMorgan.  Believe it or not the deposit was 946,339 oz or one oz off.
I guess they are trying to throw the scent off.  Regardless this is a confirmed settlement as JPMorgan will probably use this silver to put out fires in other jurisdictions.

So let us officially do the deposits:

1.  Into Brinks:  401,488 oz
2. Into JPMorgan;  946,339 oz
3. Into Scotia; 1000 oz

total deposit;  1,348,827 oz.

As explained above we had the dealer withdrawal of 946,338 oz from Brinks.

We had the following customer withdrawal:

1. Out of Delaware  2001 oz
2. Out of HSBC:  11,718 oz

total customer withdrawal:  13,719 oz

we add one adjustment of 337,460 oz whereby a dealer repaid the customer over at HSBC.
The registered or dealer silver rests tonight at 35.964 million oz
The total of all silver rests at 126.993 million oz.

The CME reported that we had a huge 43 delivery notices served or 215,000 oz.  This is most unusual to occur late in the options delivery month process.  The total number of notices filed so far this month total 1161 for a total of 5,805,000 oz.  To obtain what is left to be served upon, I take the OI standing for January (84) and subtract out today's deliveries (43) which leaves us with 41 notices left to be served upon or 205,000 oz.

Thus the total number of silver oz standing in this non delivery month is as follows;

5,805,000 oz (served)  +  205,000 oz (to be served upon)  =  6,010,000 oz.

we now have 900,000 more oz o silver standing in this non delivery month of January compared to the big delivery month of December.  It looks like Blythe has lost her magical fiat powers.  The bankers have until Jan 31.2012 to clear the remaining 41 notices in silver.

end

Let us now proceed to our ETF's SLV and GLD and then our physical gold and silver funds:

Sprott and Central Fund of Canada.

The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.

There is now evidence that the GLD and SLV are paper settling on the comex.

Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.

Jan 26. 2012:

Total Gold in Trust

Tonnes:1,261.11

Ounces:40,546,014.10

Value US$:70,000,898,214.51

Jan 25.2012

TOTAL GOLD IN TRUST

Tonnes:1,259.60

Ounces:40,497,413.10

Value US$:66,799,427,606.68

  

we gained 1,51  tonnes of gold into the GLD.  The employees of the Bank of England again had a very busy today.

And now for silver Jan 26 2012: 

Ounces of Silver in Trust	305,776,244.700
Tonnes of Silver in Trust	9,510.70

Jan 25.2012

Ounces of Silver in Trust	305,776,244.700
Tonnes of Silver in Trust	9,510.70

jan  24.2012

Ounces of Silver in Trust	305,970,641.100
Tonnes of Silver in Trust	9,516.75

jAN 23.2012

Ounces of Silver in Trust	305,970,641.100
Tonnes of Silver in Trust	9,516.75

Jan 21.2012:

Ounces of Silver in Trust	305,970,641.100
Tonnes of Silver in Trust	9,516.75

we neither gained nor lost any silver today in the SLV.

Again very strange with the huge activity in the price of silver last week, then  on all this week and yet no additions whatsoever. Strange!

end.

And now for our premiums to NAV for the funds I follow:

1. Central Fund of Canada: traded to a positive 3.4 percent to NAV in usa funds and a positive 3.5% to NAV for Cdn funds. ( Jan 26 2012.).

2. Sprott silver fund (PSLV): Premium to NAV rose  to  6.14.% to NAV  Jan 26 2012:
3. Sprott gold fund (PHYS): premium to NAV rose  to a 5.11% positive to NAV Jan 26. 2012). 

It seems that Sprott funds are being punished as they try and obtain the 8.5 million oz of silver that is in scarce supply. The owners of the Sprott fund should not worry as the huge amount of silver coming into the fund will bust the comex and LBMA as supplies are scarce.

end



This morning we were greeted with this news that the 10 year Portuguese sovereign bond hit an all time high of 15%.  If you will recall, the Greek 10 yr bond yield hit the 15% market in August 2011. The Portuguese
have asked for additional euro bailout money to the tune of 30 billion euros;

(courtesy zero hedge)

Portugal 10 Year Yield Passes 15% For The First Time, Is Where Greek 10 Year Was In August

Submitted by Tyler Durden on 01/26/2012 07:54 -0500

• 10 Year Bond
 
• Bond
 
• CDS
 
• Greece
 
• Portugal
 
• Vigilantes

As the world awaits resolution out of Greece and the debt exchange offer which even if passed today would have to cram 6 months of actual work into 54 days, the global bond vigilantes are not sticking around, and continue to attack the next weakest link - Portugal, whose 10 Year bonds just passed 15% in yield, and were trading well below 50 cents of par with CDS hitting a new record of 1350 bps. Naturally this has brought out the ECB's crack bond buying team (only at a central bank does a "trader" need only know how to buy, selling skills are optional) which tried to put the genie back in the bottle but now it is too late. After all, vigilantes are just wondering what form the Portuguese restructuring will take place considering that unlike Greece the bulk of its bonds have strong protections. So if one does use Greece as a benchmark how long does Portugal have? As the third chart shows, the last time 10 year GGBs passed 15% was back in August. So Portugal has 6 months. Give or take.

Portugese 10 Year Bond Yield:

and cash price of 2021 bonds.

...Compared to Greek 10 Year Yields.

end.




Now Japan has run its first annual trade deficit in more than 30 years as the nuclear disaster is taking its toll on this nation.  

(Reuters) - Japan's first annual trade deficit in more than 30 years calls into question how much longer the country can rely on exports to help finance a huge public debt without having to turn to fickle foreign investors.

The aftermath of the March earthquake raised fuel import costs while slowing global growth and the yen's strength hit exports, data released on Wednesday showed, swinging the 2011 trade balance into deficit.

Few analysts expect Japan to immediately run a deficit in the current account, which includes trade and returns on the country's huge portfolio of investments abroad. A steady inflow of profits and capital gains from overseas still outweighs the trade deficit.

But the trade figures underscore a broader trend of Japan's declining global competitive edge and a rapidly ageing population, compounding the immediate problem of increased reliance on fuel imports due to the loss of nuclear power.

Only four of the country's 54 nuclear power reactors are running due to public safety fears following the March disaster.

"What it means is that the time when Japan runs out of savings -- 'Sayonara net creditor country' -- that point is coming closer," said Jesper Koll, head of equities research at JPMorgan in Japan.

"It means Japan becomes dependent on global savings to fund its deficit and either the currency weakens or interest rates rise."

That prospect could give added impetus to Prime Minister Yoshihiko Noda's push to double Japan's 5 percent sales tax in two stages by October 2015 to fund the bulging social security costs of a fast-ageing society.

The biggest opposition party, although agreeing with the need for a higher levy, is threatening to block legislation in parliament's upper house in hopes of forcing a general election.

Japan logged a trade deficit of 2.49 trillion yen ($32 billion) for 2011, Ministry of Finance data showed, the first annual deficit since 1980, after the economy was hit by the shock of rising oil prices.

Were Japan to run a current account deficit, it would spell trouble because it would mean the country cannot finance its huge public debt -- already twice the size of its $5 trillion economy -- without overseas funds.

Japanese investors currently hold about 95 percent of Japan's government bonds, which lends some stability to an otherwise unsustainable debt burden.

Domestic buyers are less likely to dump debt at the first whiff of economic trouble, unlike foreign investors, as Europe's debt crisis has shown.

The trade data helped send the yen to a one-month low against the dollar and the euro on Wednesday.

end.




The total debt of Japan has been rising big time and now it is over 1.08 quadrillion yen or about 14 trillion dollars.  However it has a debt to GDP ratio of 225%, so it looks like we have two countries, the USA and Japan in trouble with huge federal debts:


  
(courtesy zero hedge)

¥1,086,000,000,000,000 (Quadrillion) In Debt And Rising, And WhyThe ¥ Will Soon Be A $: "A Lost Decade... Or Two"

Submitted by Tyler Durden on 01/26/2012 09:31 -0500

• Debt Ceiling
  
• Fannie Mae
   
• Freddie Mac
   
• Gross Domestic Product
 
• Housing Bubble
   
• Housing Market
   
• Japan
   
• Recession
   
• recovery
 
• Sovereign Debt
   
• Yen

Yesterday the Japanese Finance Ministry made a whopper of an announcement: in the year ending March 2013, total Japanese debt will surpass one quadrillion yen, or ¥1,086,000,000,000,000. This is roughly in line with theZero Hedge expectations that by this March total Japanese debt would surpass one quadrillion yen. In USD terms, at today's exchange rate, this is precisely $14 trillion. And while smaller than America's $15.4 trillion (net of all post debt ceiling breach auctions), which was $14 trillion about a year ago, the GDP backing this notional amount of debt, which just so happens is greater than the GDP of the entire Euro area, is a modest ¥481 trillion, so by the end of the next fiscal year, Japan will have a Debt to GDP ratio of 225%. And that's not counting all the household and financial debt. So prepare to add quadrillion to the vernacular. At this exponential rate of increase quintillion will appear some time in 2015 and so on. Yet the scariest conclusion is that as Bloomberg economist Joseph Brusuelas points out, America is not only next, it already is Japan. Actually scratch that, America is worse than Japan, which at least generated a real housing bubble in the years just preceding the onset of its multi-decade credit crunch, something not even America could do in comparable terms. More importantly, "the debt-to-GDP ratio of the U.S. recently surpassed 100 percent, and it did so in the four years after the onset of the recession, compared with the six years it took the Japanese debt-to-GDP ratio to do so." The Japanese may be better than America in most things, but when it comes to destroying its economy, the US has no equal. Brusuelas' conclusion: "If below trend growth is the most probable scenario in the U.S., the most likely alternative is that the U.S. economy is headed for a lost decade… or two." So... go all in?

From Bloomberg's Brusuelas:

The Long Malaise: Similarities Between Japan And The US

Slowly and surely, comparisons between the long malaise in Japan and the historically weak expansion in the U.S. are growing more valid.

These similarities primarily relate to the unique problems following the piercing of a debt-financed asset bubble that left many households, banks and firms with liabilities that exceeded assets following the bursting of a residential asset bubble. Unless policy is put in place soon or unless home prices are allowed to adjust to equilibrium clear-ing levels, it is growing more likely that the U.S. economy will continue to underperform in a fashion eerily similar to that of Japan over the past two decades. While differences between the U.S. and Japanese economies are many – the conspicuous consumption practiced by American consumers versus the thriftier Japanese public, for example – the similarities between the two economies are many. The direction of long-term yields and of the housing sector, as well as the increasingly leveraged U.S. balance sheet, look all too similar to Japan following the piercing of that country’s housing and equity market bubbles.

Peak to trough, home prices are down 33 percent. The Japanese housing market did not experience appreciable pricing gains during the first two decades of recovery, not exactly a comforting thought for either home owners or policy makers. A comparison between Japan and the U.S. housing markets in the four years following the bursting of their respective housing bubbles shows the two markets headed down the same listless path.

From the viewpoint of policy makers, the floundering housing market is blocking the process through which accommodative financial conditions stoke economic growth. This is likely why the Fed is considering purchasing mortgage-backed securities. It is also why PresidentObama, in his State of the Union address, expressed the desire to create a refinancing program that would support even the refinancing of mortgages not owned or guaranteed by Fannie Mae and Freddie Mac.

Meanwhile, the debt-to-GDP ratio of the U.S. recently surpassed 100 percent, and it did so in the four years after the onset of the recession, compared with the six years it took the Japanese debt-to-GDP ratio to do so. This makes it difficult for policy makers to push forward fiscal solutions to the housing problem, especially given private investor concern over the sovereign debt crisis in the euro zone.

Since the onset of the recession in the U.S., the economy has grown above the long-term trend of 2.7 percent in only three of 16 quarters, averaging a scant 0.16 percent rate of growth. This is very similar to the 0.5 percent average level of growth in Japan between 1991-2000. If below trend growth is the most probable scenario in the U.S., the most likely alternative is that the U.S. economy is headed for a lost decade… or two. Until a solution is put forward that addresses the shadow inventory of homes and permits prices to adjust, policy makers are just spinning their wheels, engaging in stop-gap measures that will probably prove insufficient to solve the most vexing of problems.

end

Here we go again with pressure on the private bond holders to settle.
This will go nowhere as they may do better in court.
There are rumours that a class action law suit is being filed by the sovereign nation of Greece and John Hancock insurance against Goldman Sachs on their
fraudulent sales practice on Greece.  If true this should hold up everything!!


(courtesy Ambrose Evans Pritchard/UKTelegraph)

EU ratchets up pressure with Greek default threat

European Union officials have stepped up pressure on Greece and its creditor banks in a complex game of three-way brinkmanship, signalling that they will allow a Greek default to run its course unless both sides accept more pain.

By Ambrose Evans-Pritchard, International Business Editor

9:39PM GMT 24 Jan 2012

232 Comments

Austria's finance minister Maria Fekter said patience with Athens is exhausted. "Greece has failed its austerity targets by a wide margin. The Greeks have made decisions, but they weren't implemented. They have agreed to austerity measures, but costs haven't come down. This situation has caused great consternation," she said at a meeting of EU finance minister in Brussels.

"We're sending a direct message to Greece that the community expects more. We're not pleased and only when there's a written message on the table in front of us, can further assistance be discussed," she said.

The head of the European Commission's economics team Mario Buti said Brussels is prepared to allow credit default swaps (CDS) on Greek bonds to come into play if talks fail to reach a deal that gives Greece enough debt relief to claw its way back to viability. "Triggering CDS may have to be considered," he said.

The comment is a clear warning to private creditors holding €206bn (£172bn) of Greek debt that the EU will not step in with fresh money to prevent a default on March 20, when Greece must make a €14.5bn debt payment.

The EU authorities are demanding that banks, insurers, and pension funds accept a cut in the interest rate on new bonds to 3.5pc – on top of the 50pc haircut agreed – to reflect the drastic deterioration in Greece. The creditors are holding out for 4pc. EU officials would leave Greece's debt at 125pc of GDP by 2020, above the 120pc level deemed the maximum tolerable burden.

Charlesa Dallara, the head of the International Institute for Finance (IIF) representing creditor banks, said EU officials were playing with fire by talking about default and demanded that the EU stick to the agreement reached last October.

"We put an offer on the table and it remains on the table. All parties need to contribute to the solution. We are wiping off the face of the earth €100bn in existing claims against Greece," he told Bloomberg.

The continued failure to reach a deal began rattle markets, halting the last week's rally on bourses on both sides of the Atlantic.

The Commission said the EU's new permanent rescue fund – the European Stability Mechanism (ESM) – would come into force by mid-summer. Whether it will help to contain the crisis is disputed.

Harvinder Sian from RBS said it is more likely to act as a "crisis accelerator" because the ESM is a different animal from the existing EFSF bail-out fund. Its mandate is to withhold rescue loans until private creditors have taken a haircut. "The ESM is better thought of as a mechanism for orderly debt work-outs and a way to limit the liability for core EMU. This hangs as a threat for Spain and Italy."

Mr Sian said it heightens fears of coercion and risks setting off a faster exodus from the debt markets of all the troubled countries.

end

Here are some of the rumours.  Trust me, this is a non starter.  If the coupon rate is 3.75% then the loss to the private bondholders will be around 90%.  In this rumour, the PSI want to have the ECB participate in the haircut and that is a non starter due to the fact that it would almost bankrupt them:

(courtesy zero hedge)

Rumors Start Early: Greek Creditors "Ready To Accept" 3.75% Cash Coupon But With Untenable Conditions

Submitted by Tyler Durden on 01/26/2012 07:07 -0500

• Bond
 
• Central Banks
 
• Creditors
 
• default
 
• European Central Bank
• France
 
• Greece
 
• International Monetary Fund
 
• Italy
 
• Reuters

As a reminder, the primary reason why the Greek PSI deal "officially" broke down last week, is because the European Fin Mins balked at the creditor group proposal of a 4%+ cash coupon. So now that creditor talks, which incidentally don't have a soft deadline so they can continue indefinitely, or until the money runs out on March 20, whichever comes first, have resumed we already are getting the first totally unsubstantiated "leaks" that negotiations are on the right path. As various US wires reported overnight, including DJ, BBG and Reuters, citing completely "unbiased" and "unconflicted" local Greek media, "Greece's private creditors are willing to improve their "final offer" of a four percent interest rate on new Greek bonds in order to clinch a deal in time to avert a messy default, Greek media said on Thursday without quoting any sources. With time running short ahead of a major bond redemption in March, private creditors are now considering an average coupon of around 3.75 percent on bonds they will receive in exchange for their existing investments, the newspapers wrote." All is good then: the hedge funds will make the proposal to Europe and Europe will accept, right? Wrong. "Another daily, Kerdos saidparticipation of public sector creditors including the ECB in the swap deal was a pre-condition for that offer, which it said could bring the average interest rate to about 3.8 percent." And that as was reported yesterday is a non-starter. So in other words, the latest levitation in the EURUSD started at about 4am Eastern is nothing but yet another rumor-based attempt to ramp up risk. Only this time the rumor is actually quite senseless, which probably explains why even the market which has been completely irrational lately, has seen the EURUSD drop from overnight highs. That said, expect this rumor to be recirculated at least 5 more times before end of trading.

More on this latest rumormill from Reuters:

Greek bankers and government officials said they had not heard of any new proposal from the creditors' negotiators, after local media reported they were willing to improve their "final offer" of a four percent interest rate on the new bonds to about 3.75 percent.

One Greek daily, Kerdos, said participation of public sector creditors including the ECB in the swap deal was a pre-condition for that offer.

"Until last week, we knew that the steering committee was authorised to concede up to 3.8 percent for the average coupon," one senior Greek banker told Reuters.

"But things are once again up in the air. You have to deal with politicians and 15 different governments asking for different things. We haven't got anything clear from the IIF yet, discussions start today."

Euro zone ministers rejected on Monday the creditors' offer of a 4 percent coupon on new bonds, increasing the chance that Athens would have to enforce losses. Greece and its EU/IMF lenders were holding out for a 3.5 percent interest rate.

The ECB had ruled out taking voluntary losses on its Greek bond holdings but is now debating how it would handle any forced losses and whether to explore legal options to avoid such a hit, central bank sources told Reuters on Wednesday.

One source close to talks among ECB policymakers said that while France, Italy and the ECB board in Frankfurt were against accepting losses, some national central banks, which have expressed reservations over the bond purchases from the start, now accepted that losses may be unavoidable.

"The ECB will not take losses on its Greek bond holdings voluntarily ... but there is a fierce debate within the ECB on how to handle forced losses," the source said.

The best solution might be for ECB to take a haircut on its Greek bonds at the discount they were picked up at by the central bank via its bond-buying programme, one senior European banker not involved in talks said.

"Taking any hit beyond that discount (that the bonds were bought at) would unleash a Pandora's Box. It would raise so many issues about the fiscal integration of European debt, as the losses would have to be shared by the central banks. That would effectively be euro bonds," the banker said.

Finally:

The chairman of BNP Paribas, one of the banks on the committee leading talks for creditors, suggested on Wednesday that bondholders would not retreat from their position easily.

Needless to say, it is one thing for one hold out hedge fund to have done the IRR analysis and say it will sue just for nuisance value. It is something else for a major bank to be on the hold out group.

Average:

end



Many of you know I follow the Baltic Dry Index.  This is simply a shipping cost index as to the movements of dry commodities like grain, corn, cotton etc but not oil.  If the economy is improving then this index would improve.  If it falls, the economy is lousy.

(courtesy zero hedge)

Baltic Dry Plunges 42% More Than Seasonal Norm To Start The Year

Submitted by Tyler Durden on 01/26/2012 08:54 -0500

• Baltic Dry

Whether it is an over-abundance of ships (mis-allocation of capital) or a slowing global growth story (aggregate demand), the crash in the Baltic Dry Index has been significant to say the least. Seasonals are prevalent (and Chinese New Year impacts) but to try and clean up that perspective, we find that so far this year the Baltic Dry has fallen 42% more than its seasonal normal and is down by more than 50% since 12/30/11. Nothing to see here move along.

and on a log scale, this is indeed an impressive drop...

Chart: Bloomberg

end

Today they brought out the weekly jobless numbers and it was a mess even though durable
goods were better than expected:

(courtesy zero hedge)

Jobless Claims Miss, Durable Goods Better Than Expected

Submitted by Tyler Durden on 01/26/2012 08:40 -0500

• Boeing
 
• Continuing Claims
 
• Reality
 
• Volatility

And so the volatility continues: initial claims go from 402K to an upward revised 356K, to 377K, on expectations of 370K. The swings in this data series are getting as big as those in the stock market on those rare occasions when reality sets in. The miss is in line with the Fed perceived weakness in the economy. Continuing claims also missed coming at 3554K up from an upward revised 3466K, higher than expectations of 3500K. A whopping 146K dropped out of extended claims: in fact, in the past year the unemployed collecting post 6 month benefits either EUCs or Extended Benefits have plunged from 4.6 million to 3.4 million. As for last week's massive drop of nearly 50K initial claims, we learn that somehow it was New York to thank for this, with 27.7K less claims than the week before due to "Fewer layoffs in the transportation, educational, and construction industries." How about layoffs in the financial services industry, and also how much do those jobs pay vs "transportation, educational and construction" jobs?  What however does not justify the Fed's ZIRP through 2015 or so, is the Durable Goods number which came at 3.0%, on expectations of 2.0%, down from an upward revised 4.3%. The bulk of this was in airplane orders thanks to Boeing as noted previously. However what was surprising is that Durable Goods ex transportation came in at a blistering 2.1% on Exp of 0.9%, and Capital Goods Orders ex Non-Def and Aircraft which rose 2.9% on expectations of 1.0%. However since the Fed has made it clear it will boost its balance sheet, and as of today the implied increase is over $800 billion, at the smallest whiff of trouble, the risk bubble is in full on mode as bad news is good news, and good news is better news.

end

New home sales in the use fall to record lows.

(courtesy zero hedge)

2011 New Home Sales Fall To Record Low, Median New Home Price At Lowest Since October 2010

Submitted by Tyler Durden on 01/26/2012 10:29 -0500

• Census Bureau
 
• Housing Market
 
• Japan
 
• New Home Sales
 
• recovery

Looks like the earlier analysis that the US is slowly morphing into a second Japan just got even more confirmation. According to the Census Bureau (not NAR data, which we will hence ignore completely due to its consistent bias, error and overall worthlessness) December New Home Sales declined from 321K to a seasonally adjusted annualized rate of 307K in December, on expectations of a rise to 321K from last month's revised 315K. On a non-seasonally adjusted basis the US sold a whopping 21K homes, the lowest since January 2011, and on par with the lowest on record. What is more troubling is that according to Bloomberg, the 2011 number of 302K sales is the lowest on record. Of these 21K, 5K were not even started. So much for that housing recovery. And also confirming that there is not even a glimmer of hope for the US housing market is that the Median Price for new homes just dropped from $215,700 to $210,300, which is the lowest median price since October 2010. The chart below of pricing trends indicates all that is needed to know which way the housing market is going.

end
The USA finally has their debt ceiling at 16.4 trillion dollars.At the rate of usage of fiat money, this will last until October:
(courtesy zero hedge)

Update: America Has A $16.4 Trillion Debt Ceiling In 52-44 Senate Vote

Submitted by Tyler Durden on 01/26/2012 12:02 -0500

• Debt Ceiling

Update: the Senate has failed to reject a bid to stop the debt ceiling hike with a simple 52 vote majority all of it along party lines. The US now has $16.4 trillion in debt capacity as of Friday. Since roughly $100 billion was plundered from Pension Funds in the past month, The US will have about $15.4 trillion in debt with the Monday DTS. The question then is how long will the $1 trillion in debt capacity last: at $125 billion/month it won't be enough to carry the US past the election without another massive debt ceiling spectacle.

While Congress recently voted down the increase in the US debt ceiling, that vote was largely irrelevant. And all that matters is how the Senate will vote. Watch it live in progress below. It is virtually unlikely that the process of debt ceiling increase will be overturned so within minutes the US should have a brand spaking new debt ceiling of $16.4 trillion.

Average:

And now onto Iran with these headline stories:


Iran threatens first on the oil embargo:
(courtesy London;s Financial times)

* Iran threatens to act first on EU embargo: The FT reported Iran has threatened to halt its exports to the EU immediately, a move that could hit economically weak southern European countries still trying to find alternative supplies. Emad Hosseini, spokesman for the Iranian parliament's energy committee, said lawmakers were finalizing a draft bill to stop all oil trade with Europe, which could come before parliament as early as Sunday.

end

And this is what it will do to the oil price

(courtesy Bloomberg)

 Iran oil halt to OECD likely to raise price by $30, IMF says: Bloomberg noted that the IMF said a halt of Iran's oil exports to countries in the OECD would likely lead to a crude price increase of as much as $30 a barrel. The report released yesterday said this would be the case if other sources did not offset the supply disruption, and also noted that a closure of the Strait of Hormuz could trigger a much larger rally.

Israel wishes a massive oil blockade to stop Iran from developing nuclear weapons:


(courtesy Bloomberg)

* 'Massive' blockade needed to stop Iran threat, Israel's Steinitz says: Bloomberg noted that Israeli Finance Minister Yuval Steinitz, said a "massive" aerial and naval blockade of Iran is needed to stop the country from pursuing nuclear weapons. He said the EU embargo and other economic sanctions "might not be sufficient" in deterring Iran's nuclear ambitions, but added the sanctions have taken their toll as Iran is already facing severe economic difficulties and is not insensitive to pressure. Recall that Steinitz has repeatedly called for tougher actions against Tehran.

end
China does not want to go along with the embargo as they have many financial deals with Iran:
(courtesy Bloomberg)

* China says EU ban on Iran not "constructive": Reuters reported that China criticized the EU for banning oil imports from Iran today, and defended its right to buy Iranian crude as normal trade activity. China's Foreign Ministry said "It is not a constructive approach to simply pile up the pressure and impose sanctions." The statement added, "China hopes relevant parties resort to measures conductive to regional peace and stability."

end

It appears to me that India is going to purchase its oil supply from Iran and not pay attention to the embargo.

(courtesy of Andrew Buncombe/the Independent)

India pledges to continue buying oil from Iran

India could be on a collision course with the United States and European Union after officials in Delhi made clear they intended to carry on importing oil from Iran, despite the imposition of Western sanctions against Tehran.

S Jaipal Reddy, India’s Oil Minister, said yesterday that the country was still considering how best to make payments for the $12bn of crude oil it annually imports from Iran, and which it pays for using a Turkish bank as an intermediary. Delhi is concerned that the US will seek to persuade Turkey to block this option as the West steps up pressure on Iran.

Drawing a very clear distinction between UN sanctions and those imposed by the US, Mr Reddy told reporters: “We will scrupulously adhere to the sanctions imposed by the UN. No less, no more. We will continue to explore various options of payment to Iran. As of now, supplies are on and Iran has been very positive and we are still optimistic.”

A team of Indian experts recently visited Tehran to assess the best way to continue to make payments. Unconfirmed reports suggest the options include the rupee, which is only partly convertible, and the Japanese yen. One report suggested India would pay for the oil using gold. Mr Reddy declined to comment on the outcome of the discussions. “We cannot disclose such things,” he said.

The US and EU, which accuse Iran of trying to develop a nuclear weapon – an accusation that Iran stridently denies – are seeking various ways to put pressure on the government in Tehran. EU foreign ministers this week agreed to a ban on oil imports from Iran as of 1 July.

India has no intention of following suit. The country is hungry for energy, with an economy growing at more than 7 per cent. The AFP news agency reports that India buys 12 per cent of its oil from Iran, which is its second largest supplier after Saudi Arabia.

China is the Islamic Republic’s largest customer, accounting for around 20 per cent of its exports, and has already made clear it has no plan to alter this arrangement. Last year, as the issue of sanctions emerged, there were reports India may seek to barter for the oil, offering steel, electronic goods and food in exchange.

end.

From GATA:

Volcker confirms central bank need to suppress gold to stabilize exchange rates at 'critical point'

Submitted by cpowell on Thu, 2012-01-26 20:50. Section: Daily Dispatches

2:09p ET Thursday, January 26, 2012

Dear Friend of GATA and Gold:

Former Federal Reserve Chairman Paul Volcker today defended government intervention in the gold market to counter "exchange rate instability at a critical point."

Volcker's comments came in response to inquiry from the German freelance journalist Lars Schall, who noted GATA's reference to Volcker's expression of regret, recorded in his memoirs, about the failure of Western central banks to intervene to suppress gold prices during a currency revaluation in 1973. Volcker's support of gold price suppression was cited by your secretary/treasurer in his address to the Vancouver Resource Investment Conference last Saturday:

http://www.gata.org/node/10909

In his comments to Schall today, Volcker added that, "to the best of my knowledge," the United States has not intervened in the gold market for more than 40 years.

Nevertheless, the former Fed chairman confirmed the profound interest central banks have in the price of gold because of its effect on the currency markets, an interest that may justify intervention at any "critical point."

This contradicts oft-repeated assertions by certain gold market analysts, like Kitco's Jon Nadler, that central banks have no interest in manipulating the gold market:

http://www.gata.org/node/8717

Schall's initiative demonstrates what is so lacking in the mainstream financial media. He tracked down a central banker, put the gold price manipulation question to him, and got a noteworthy answer on the record -- a feat not yet attempted by, for example, the Financial Times, The Wall Street Journal, The New York Times, Reuters, Bloomberg News, the Associated Press, and on and on.

Imagine the news that might result from persistent questioning of central bankers in public about market intervention. Of course that's exactly why it's seldom done or permitted.

Schall's account of his search for Volcker is appended.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

By Lars Schall
Thursday, January 26, 2012

At the Vancouver Resource Investment Conference on January 21, Chris Powell, secretary/tresurer of the Gold Anti-Trust Action Committe Inc., gave a presentation entitled "Gold-Market Rigging Has Many Whistleblowers; They're Just Always Ignored":

http://www.gata.org/node/10909

Powell said: "Paul Volcker was the U.S. Treasury Department's undersecretary for international monetary affairs from 1969 to 1974 and became Fed chairman in 1979. He lately has been an adviser to President Obama. Volcker has written some memoirs that as far as we can tell have been published only in excerpts by The Nikkei Weekly in Japan.

"On November 15, 2004, The Nikkei Weekly published the following excerpt from Volcker’s memiors about the U.S. dollar revaluation that took place on February 12, 1973. Volcker writes:

"'That day the United States announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.' (http://www.gata.org/node/8209.)

"Got that? A former Federal Reserve chairman, the one credited for wringing inflation out of the U.S. dollar in the late 1970s and early 1980s, now a presidential adviser, says that for the U.S. government not to rig the gold market was a mistake.

"Volcker is still around to answer questions, but as far as we know, no financial journalist has ever asked him why not rigging the gold market was a mistake."

After I read the remarks by Powell, I sent in the past few days more or less the same e-mail message to the press offices of the Group of 30, the Trilateral Commission, the Council on Foreign Relations, the White House in Washington, and Klaus-Dieter Frankenberger, foreign editor of the Frankfurter Allgemeine Zeitung and a member of the Trilateral Commission. My message said:

"Dear Ladies and Gentlemen,

"My name is Lars Schall. I am a freelance journalist from Germany. I write to you with Chris Powell, secretary/treasurer of the Gold Anti-Trust Action Committee Inc.

"Could you forward the following message to Paul A. Volcker, please? Thank you!

"Dear Mr. Volcker,

"On November 15, 2004, The Nikkei Weekly published the following excerpt from your memiors about the U.S. dollar revaluation that took place on February 12, 1973. You wrote:

"'That day the United States announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.'

"As Powell and I understand it, you are saying here that for the U.S. government not to rig the gold market was a mistake.

"Is this indeed what you want to say? If so, why was it a mistake? And do you think the U.S. government has learned from that mistake ever since? In other words: Does the U.S. government intervene in the gold market from time to time in order to support the dollar and other currencies against gold?

"An answer from you, Sir, for the public would be much appreciated.

"Best regards, Lars Schall."

Today I received via Anke Dening, Volcker's wife and longtime assistant, this message:

"Dear Mr. Schall:

"The quotation you cite is about an event almost 40 years ago. It pertained to the possibility of speculation in the gold market leading to exchange rate instability at a critical point.

"The U.S. has not, to the best of my knowledge, intervened in the gold market for more than 40 years.

"Sincerely, Paul Volcker."

end

Rob Kirby responds on the bars swapped between the USA treasury and UK Treasury.

This is a location swap.

This is VERY INTERESTING….

This is the gold swap contract between the US Treasury and HM Treasury, 16th January 1981.

Notice US swapped US-assay stamped bars against London good delivery bars. This is a gold location swap and a gold quality swap.

The source at the UN treaties web site:

http://untreaty.un.org/unts/60001_120000/9/10/00016474.pdf

Lots of interesting legal clauses on how these swaps work, including an option to reverse the swap at a later date…

QL-rQlWIR8q.pdf

end.

I guess it is late, so I had better send this down to you.
Since we had a huge number of options ended up in the money, you can bet'
the farm that the bankers will raid starting tomorrow and for sure before Tuesday
which is first day notice for the February gold.
I will see you early Saturday morning.

Harvey